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Inventory
Management
Inventory level
Maximum
inventory
Time
Figure 12.6
Inventory
Management
p d in
The optimizationC results
06 July 2012
Inventory
Management
Inventory
Management
Inventory
Management
EOQ = (2DS/C)[p/(p-d)]
EOQ = 2(292,000)(5,000)/2.10[3,500/(3,500-800)]
=
42,455.5
06 July 2012
Inventory
Management
06 July 2012
EOQi = 2DS/Ci
SAFETY STOCK
Is required to be considered in some conditions
They Arise
because
In practical situation
Demand of items may fluctuate at any point of
time
And also suppliers always need some lead
time to supply the goods
rate
Re order level
Q
500 units
Lead Time
10days
First Order
Second Order
Goods Received
rate
Re order level
Q
500 units
7 days
Lead Time
10days
First Order
Second Order
Goods Received
Excessive consumption of inventory during the lead time, leading
L to stock out
rate
Re order level
L
e
v
e
l
500 units
7 days
Lead Time
800 units
Second Order
Goods Received
Safety Stock
Consumption
during lead time
(units)
Probability
1000
2000
3000
4000
5000
6000
7000
8000
.01
.03
.07
.14
.61
.04
.07
.03
1.00
Lead time
consumption
leading to stock
out
NO. of units
short
Probability
6000
1000
.04
10X1000X.04X2 = 800
7000
2000
.07
10X2000X.07X2 = 2800
8000
3000
.03
10X3000X.03X2 = 1800
5400.00
7000
1000
.07
10X1000X.07X2 = 1400
8000
2000
.03
10X2000X.03X2 = 1200
2600.00
1000
.03
10X1000X.03X2 = 600
600.00
Case1.
Case 2.
Case 3.
8000
Comparison
Safety stock
levels (units)
CC of safety
stock (Rs.)
Total safety
Stock Cost(Rs.)
5400.00
5400.00
1000
1000.00
2600.00
3600.00
2000
2000.00
600.00
2600.00
3000
3000.00
3000.00
, Sd= Sd
* square root of LT
Average Inventory
Level (AIL) = regular stock + safety stock
Q
AIL =
+ z x sd
2
29
Target Level or
Maximum Inventory Level
Total of the:
demand (D) during the review period
(R)
+ demand (D) during the lead time (L)
+ safety stock (SS)
T = D(R + L) + SS
Q=T-I
Determine:
Periodic
Point System
Review System
T-I
When to (re)order:
ROP
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